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Transform your accounting practice with professional services advisory
Fri, 22nd Mar 2024

If you're an accountant or bookkeeper seeking to broaden your horizons and venture into advisory services, the professional services sector is an excellent starting point. This sector has long been overlooked, and therefore, offers lucrative opportunities for those willing to offer expert advisory support.

The professional services sector comprises businesses that specialise in different services but share a common business model. As a result, if you develop knowledge and skills in the professional services sector, you can advise multiple industries. Some examples of professional services businesses include architects, software developers, engineers, advertising agencies, management consultants, creative studios, and many more, all of which operate on the same underlying model.

As of 2023, professional services have the 4th largest market size in Australia, attune to the sum of AU$263.2bn. In addition, the sector is projected to bring in AU$2.44bn in 2024 alone. 

The opportunity is there, and clients are looking for people with your expertise to guide them.

One thing that we have observed over the years is that a lot of professional service firms are not aware of what metrics they should be tracking and frequently depend on past data without any forward-looking planning. Knowing the essential metrics used to gauge success within professional services is the first step in becoming a trusted advisor. 

To help you get started, here are the 3 most important metrics for professional services to track.

Gross margin
Professional services should be actively monitoring their gross margin to avoid potential revenue or cost concerns. Currently, many consulting business owners track their gross margin on a monthly basis, after invoicing, which is too late to make any improvements. By providing your clients with real-time gross margin information, they can be assured that their business is increasing its average gross margin over time.

Gross margins should be between 10% and 30% on the lower end, all the way up to 50-85% for clients offering more unique services. 

Projectworks allows clients to see all of the above, plus their projected margin. This gives them a glimpse into the future and an opportunity to make actionable changes in advance if needed.

Utilisation rate
Professional service firms must measure their utilisation rates to thrive. Utilisation rates are a critical metric that quantifies the amount of billable hours dedicated to revenue-generating activities by employees. Failing to measure utilisation rates means operating blindly, which can hinder a firm's growth and profitability. 

In general, a company-wide utilisation rate of over 80% is considered acceptable, while over 90% is outstanding. This can, however, vary based on the services your clients provide. 
While most firms have their utilisation targets tucked away in spreadsheets, few proactively manage them, and even fewer look at them in advance based on a resourcing plan. This is a lost opportunity as professional service businesses can significantly increase their margins by measuring and improving their utilisation rates. Providing support in this area is a highly valuable skill that clients will appreciate.

Leverage
Assisting your clients in balancing costs is likely something you're familiar with. You can utilise your expertise to help professional services increase their profit margins through appropriate leverage. In professional services, leverage refers to the ratio of senior professionals to less experienced employees within a firm. Finding the right balance is crucial, as a project staffed only with senior consultants can be costly, while a project with only junior employees may lack adequate quality control.

The average professional service firm should aim to maintain a balanced leverage ratio of around 6:1 - 8:1 (low experienced staff to experienced staff) on each project. 
Learn more: 5 metrics professional services firm uses to remain profitable

Professional services firms need advisers, could you be one?
The professional services sector is diverse and requires expert financial, and software advice. Through educating yourself on one business model, you can serve a variety of clients as they share common KPIs, metrics, and advisory needs.

This is just a taster of the professional services sector, but if you're curious to know more - consider joining our Partner Program. Within the Partner Program, we teach you how to advise professional services and offer information about Projectworks as an option for your clients. 

The partnership is mutually beneficial as it helps us find new customers, and provides you with a highly rated software option for your clients, and commission, or the option to pass the savings on to your clients.